How much will I get from my pension?

State Pension age may be accelerating past 67, but with many pensions, you can grab some cash from 55.

Back when I first started a pension at 23, that seemed unfeasibly old. With the optimism of youth, I set my retirement age at 50 – I don’t think that’s even allowed now!

Now I’m in my forties, skipping off into the sunset at 50 is unlikely. But working till I drop doesn’t appeal either.

So I’m keen to see if I’ll have enough money to live on later. By checking now, I’ve still got time to bung extra into my pension pot, if my retirement looks likely to be more baked beans than Barbados. Plus, anything I put in my pension gets topped up with free money from the tax man.

Like many people, my pension income will come from a patchwork of places, so I need to find out how much I’ll get from my:

Feeling nosey? Read on to find all the deets about how much cash I’ve got stashed in my pensions, and how to check what you’ll get from where.

Start with the state pension

After all these years stumping up National Insurance contributions, I’m keen to discover how much I’ll actually get back.

Looking at my State Pension forecast online, the most I could get when I reach 67 is currently £164.35 a week, provided I keep on paying National Insurance contributions for another eight years.

That works out as just under £715 a month or £8,576 a year. Relying on the State Pension alone, I’ll be lucky to get to Basingstoke let alone Barbados.

Check your own forecast on the GOV.UK website here and when you’re likely to get it, aka your state pension age, here

Review any private pension

Back when I started my first proper job, my employer didn’t offer a workplace pension. Again, so not allowed nowadays.

Instead, new recruits were put in touch with a financial adviser (whose son just happened to be a member of staff. Go figure).

Luckily, I managed to avoid signing up for a fancy pants plan with humongous commission. Instead, at the beginning of 1995, I started paying £75 a month into an M&G pension. Later on, Government payments when I contracted out of part of the State Pension (something that’s no longer possible) went into this pension plan too.

Pension articles always seem to involve regular payments that start at one age and continue smoothly until retirement.

In reality, I upped my payments each year, then stopped contributing when I left that job, didn’t pay in anything for several years while I worked elsewhere, then started contributing again after I went on maternity leave.

I’ve been leafing through my statements, as the pension passed from M&G to Prudential, then another adviser suggested shifting to Legal & General.

Totting up the figures, I reckon I’ve actually paid in just over £37,600 of my own money into my private pension.

My contributions got topped up with tax relief, contracted out payments and a whole lot of time for investment growth (because: old). They also had charges taken off.

I checked online, and ta dah my private pension pot is now worth just under £123,000. That’s over three times more than I paid in!

That feels like a decent chunk of pension under my belt, especially compared to the average UK pension pot of £21,441, according to research by PensionBee.

Pension savings do vary up and down the country though. On average, research by PensionBee found the smallest pension pots in the North East, at £14,513 while people in South East England had stashed away the most, at £28,183 on average.

Sadly, women are likely to be worse off in retirement. The average female pension pot in the UK is only £16,083, whereas men had saved £23,416 on average, according to PensionBee. That’s almost a third less. Thanks a lot, gender pay gap, career gaps for caring responsibilities and part-time jobs.

Work out workplace pensions

The people surveyed by PensionBee might also hope to earn a bit extra from pension schemes at work.

I’ve only worked for one company that had a workplace pension scheme – The Daily Telegraph.

Luckily, as I was working on the newspaper’s money section, my boss encouraged me to join the scheme and later whack in extra money when I could afford it.

I paid in £7,730 of my own money, including my additional voluntary contributions. The benefit of my work pension compared to my private pension was that I also got money added by my employer. Shame I only had an employer for five years, before leaving when I had children. But add on tax relief and growth too, and now it’s worth nearly £38,400. That’s almost five times more than I paid in myself!

With only one employer scheme, it’s pretty easy to check my pension progress, especially since I registered for access online. But elsewhere, more than 7 million people are estimated to have lost track of one or more pensions, often because they didn’t get round to telling the scheme when they moved house.

Calculating my income in retirement

So adding together my private and workplace pensions, I’ve got around £160,000 stashed away right now.

(Short pause to remember that only cost me just over £45,330 in contributions. Still sounds chunky, but spread over 23 (cough) years, that’s just under £165 a month).

But what income will I end up with in retirement?

That’s where a pension calculator comes in handy.

A pension calculator is a tool that estimates how much income you might get in retirement, based on how much you’ve saved so far, how much you add in future, and how long till you retire.

I’ve wrestled with a load of different pension calculators for work, and the clearest and easiest one I’ve found is from PensionBee.

Using the PensionBee pension calculator

The first step is thinking about how much income you’d like to live on, so you can see if your savings are on track.

I resisted plucking a figure out of the air for living it large. Generally, experts reckon you’ll need two thirds of your current income in retirement, as hopefully any mortgage will be long gone, and you won’t be forking out for commuting costs and work clothes.

The PensionBee pension calculator starts with income at £26,000 a year, so I just left it at that, but you can bump the amount up (dream big!) or down (maybe more realistic).

PensionBee pension calculator

As you can see from the picture above, there are sliders which make it super easy to set your current age, retirement age, current pension pot and assorted contributions. You can also choose whether or not to include the State Pension.

I picked 67 as my retirement age, to match my State Pension age, as that’s a neat 20 years away. Underneath, I moved the slider along to £160,000 for my total pension pot.

I set my personal monthly contributions to £240 and put £0 (sob) for employer contributions as I’m self-employed with no boss to pay into my pension.

In practice, my pension payments are a bit erratic. As a freelancer, I’m never quite sure how much money I’ll have each month. I tend to bung in a lump sum once a year, after I’ve done my tax return.

During maternity leaves, I paid in the maximum amount allowed to get tax relief even if you’re not earning enough to pay any tax. That’s £2,880 a year (which works out as £240 a month) before it gets topped up to £3,600 by the tax man. In theory, I could pay in more now, up to 100% of annual earnings capped at £40,000.

After putting in all my numbers, my projected annual earnings, including the State Pension, came to £30,736 a year. That’s better than I expected!

But what if…?

One of the fun bits about the PensionBee calculator is that it’s really easy to tweak the numbers and see the difference.

What if I quit earlier? Keep working longer? Scrape together higher monthly payments, or bung in a big contribution from a savings account, bonus or inheritance?

Just move the sliders, and it calculates the impact. Add more money, and your income might stretch to cruises rather than crusts. Chop your retirement age, and see if you can afford to tell your boss where to stick his job earlier than expected.

Say I fancy quitting at 57 rather than 67. I just tweak the slider, and move the button at the bottom so it doesn’t include the state pension, which would only kick in later.

Tweaked to retire earlier

But by halving the time for further pension payments and growth to 10 years, and with the state pension stripped out, I’m now looking at an income estimate of £13,800 a year. Better keep writing those articles!

Devil is in the details

Bear in mind that the income generated by any pension calculator is not guaranteed but just an estimate.

Pension forecasts are based on assumptions, because no-one has a crystal ball to forecast exactly how inflation and investments will change over time. Who knows how the government might also move the pension goal posts? Heck, most of us can’t even guarantee how much we’ll be able to pay in ourselves.

The PensionBee calculator uses stats handed out by the regulator, including pension investments growing at 5% a year while annual inflation grows at 2.5% a year. The official figures sound on the sluggish side for stock market investments to me, so I hope to end up with more money in reality.

I checked with PensionBee, and the calculator also lops off charges of 0.5% a year, which is relatively low for a pension. If I leave my money languishing in a more expensive scheme, I’m likely to end up with less income in retirement.

The calculator also assumes that I’ll hike up my personal contributions by 2% a year, rather than paying in the equivalent of £240 a month, year in, year out.

The biggest assumption, however, is that the whole pension pot is used to buy an income at 5% a year, rather than removing a penny to spend elsewhere. But one of the perks of pensions is that after 55 you are allowed to take out up to a quarter tax-free, and potentially more if you’re willing to pay the tax bill. This matters because if you spend a chunk of your pension at the start, you’ll be left with less income afterwards.

Also, bear in mind that a pension is just one way of funding retirement. My husband and I are hoping to bolster later life with rent from a buy-to-let property, plus income from investments held inside individual savings accounts (Isas).

What next?

Checking my potential income in retirement made me very grateful I’ve paid into a pension since starting work, and encouraged me to continue. Choosing between heating and eating in old age doesn’t appeal.

Now over to you – have you added up how much income you’re likely to get in retirement? Looking good or a shock to the system? Do try a pension calculator and let me know.

This post is a collaboration with PensionBee. However, all views are my own, and based on my personal calculations using the PensionBee pension calculator.

PensionBee is authorised and regulated by the Financial Conduct Authority. With pensions, your capital is at risk. The value of your pension with PensionBee can go down as well as up and you may get back less than you started with.

Hi Alex – Brilliant that you’re living comfortably on the state pension. Part of my concern is that the state pension might not be worth as much by the time I reach my 70s. I’m hoping that by setting aside money I earn now, rather than spending everything, I’ll have more to live on in future.

So e peopme choose to spend their income on bigger houses, faster cars, fancy holidays.
Some people choose instead to save via a pension to make their retirement more comfortable.
That is choice, not greed.

Thanks Eloise! As you say, saving for the future does affect spending today. We spend less on stuff like clothes, cars, phones, holidays and eating out so we can put money in pensions. Right now I feel very fortunate to have enough to be able to make that choice.

I will be losing £100 a month from my state pension because my workplace pension was contracted out for some years. Despite the fact that the total NI saving I made would be effectively recouped by the Government (by paying me the lower state pension) within 18 months, the contracted out deduction is applied for as long as I receive the state pension. If I live until I am 81 (expected life expectancy for a woman my age) I will have lost out by thousands.
A neighbour of mine who has rarely worked but has a full contribution record because she received credits when on benefits, will receive the full pension. Do I sound bitter……you bet!
On another note, I have just this week seen sight of a pension statement which shows a pot of £571 which will pay out £15 a year. The recipient will have to live to the age of 99 to break even.
I think the entire industry needs a mammoth overhaul and to be better regulated.

Remember the contracted out deduction as such is because you didn’t pay into SERPS/2nd state pension AND were paying into another pension (employer probably). You might feel you are having £100 deducted but you didn’t pay for that part of the SRP. However you did pay it into an employer pension which I do hope pays you at least £100 a month if not more. Hope that makes sense!

Unfortunately the difference in my company pension doesn’t offset the amount I will lose on my state pension when calculated over a 20 year period. I will still overall lose several thousands of pounds. I understand that the problem is that if you contracted out of SERPS at any point, this is applied as if it occurred over the whole of your working life and not just a portion of it (in my case only about 7 years).

Hi Eloise,
Certainly the theory behind contracting out was that although people got less in State Pension, they got more from their workplace or private pension instead. Sorry to hear the extra in your work pension doesn’t make up the difference. I am part way through a post on the vexed issue of contracting out and how it affects State Pension payments, so will check about the issue of how long people were actually contracted out vs the impact.

I only have a small personal pension which I don’t intend to keep for long once I retire. I will put it into drawdown and empty it within 3-5 years before taking my final salary pension. That way I save on paying tax on both pensions and don’t take the hit of an actuary reduction on my FSP.

My FIL’s state pension before he passed away was well over £200 a week. Because he paid into SERPs for so long. These days a single persons pension is much less so it’s much harder to survive on SRP only. There are other benefits/credits that could kick in if a person is living on SRP only. Pension/Savings Credit etc. If in rented accommodation then Housing Benefit and Council Tax Benefit may also be claimable.

Hi Tupenny,
Glad your own pensions are in hand, with the chance to get money from your private pension before your workplace pension kicks in.
Good point that for anyone with only the State Pension, there are other benefits and credits that can help increase income.

Great article FAITH. You managed to cut through a lot of the smoke and mirrors and create a clear picture. Like many of us, it’s going to be a mixture of state pension, company pension, private pension and savings.
In reply to ELOISE, unless you are already getting your state pension, you can make up any shortfall by ‘buying’ years missed. Either about £750 per year to get extra £5 per week or, if you have small business (not making much profit or indeed a loss) you can volunteer to pay class2 NI costing about £150 a year and gaining a year’s credit.
And that makes me ask FAITH if the calculator says you are only 8 years short of full state pension. That is currently 35 years full NI credits. As you are only 47 and you say you were contracted out of SERPS (how long – up to 10 years was possible I seem to remember), calculator is saying you paid full NI for 35-8 =27 years. Or continually since you were 20. You may want to check, although you have time on your side unless THEY increase the required number of years again.

Thanks Jaydee! Very glad you thought the post painted a clear picture.
For my National Insurance contributions, I have actually got some years credited from the age of 16, when I was in full-time education before university. That’s why I only need to contribute for 8 more years, even though I haven’t worked continuously since turning 20.
I checked my National Insurance record online (via the same link as the GOV.UK State Pension forecast mentioned in the post) and would encourage anyone to check too. If you have gaps in the last 6 years, it’s possible to make voluntary contributions and add a bit more to your State Pension: https://www.gov.uk/voluntary-national-insurance-contributions/deadlines
This might be helpful for those closer to State Pension age, who won’t otherwise continue working & paying National Insurance contributions long enough to get a full State Pension.

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The contents of this blog are for information and ideas, and should not be viewed as financial advice. Use of the material is conditional on there being no liability for how you choose to use it. If you are unsure about any investments or financial issues, please contact a financial adviser.